It's great advice because word of mouth is extremely important for a technical business selling to a small but lucrative market where buyers have alternatives (like hiring decisions). This will have less impact in large consumer sales where advertising matters, or when you have a market cornered.
It will work when you apply for a job or hire someone. You're selling to a small market - the few employers you speak with. They have some alternatives, but if someone they know and trust (Bob, in this story) raves about you from first-hand experience, it matters quite a lot. Likewise if someone tells me how awesome it is to work with a particular person or group, I am much more likely to take that job among competitive alternatives. Treat your employees like crap and all you'll get are crap new employees, etc.
We don't all run businesses in small lucrative markets. But we do all apply to jobs from time to time, where previously helped or pissed off people will make a huge difference.